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Colonising the Future: The productivity puzzle, March of the Robots, and anxiety versus optimism

The UK has been grappling with a “productivity puzzle”. For the government and Office for National Statistics (ONS) this is something specific. It is the slowdown (described as a downward deviation) of output per hour from its previous upward trend. This began with the financial and economic crisis of 2008, but has since become a “flatlining” where employment has recovered, economic growth has occurred, but some ingredient seems to have been missing, which would allow more to be produced with similar values of resources in the same number of hours. The measured trend deviation is very clear in ONS data to 2015:[i]

Though there has been some small upward change in productivity in 2017, the overall position in 2018 remains relatively similar, and the main contrast drawn has been with overall productivity and productivity growth trends in OECD nations (which are higher and greater).[ii] Many causes have been identified for the overall pattern and many solutions have been proffered or considered. Much of this intersected post-2008 with initial calls to restructure and transform the UK economy, reducing its dependence on the financial sector, creating “resilience” and seeking to “rebalance” the economy. In manufacturing, this became a call for a new “march of the makers” based on a combination of better infrastructure and investment in industry to renew the sector and encourage reshoring to reverse trends of the last twenty five years.[iii] A regional focus was added through the “Northern Powerhouse” concept.

The results of this confluence have been patchy at best. Employment has mainly recovered through a combination of self-employment and new forms of flexible employment practices that, often through the use of digital platforms that assert they are not employers, have created a “gig economy” effect in which wages have been suppressed and conditions made precarious. Many small and medium-sized enterprises (SMEs) have opted for staff retention during the last few years (for the many reasons that an SME with genuine human relations with its staff rather than human resource relations might) but have been cautious regarding expansion through new investment because of problems of credit availability and terms and conditions of borrowing from the major banks (in a context surely not helped by the various scandals regarding exploitation of SMEs by bank staff and where, in any case, SMEs have never been a major revenue source and priority when contrasted with the profitability of financial asset construction and trading). Banks meanwhile have kept many of the more heavily indebted larger failing firms on their loan books on life support, and so have inadvertently contributed to low output statistics, since these firms cannot invest or innovate easily (compounding their track record). Wrapped around the whole has been government austerity policy that has reduced overall growth in capital spending, radically reduced the capacity for local council spending and adversely affected the costing of contracts with private providers. It is easy to forget how much of the private sector is linked to public sector activity, and this spreads far further - via the income and consumption of public sector workers, and via supply chains and their linkages - than just public private contracting through Capita, Carillion, Interserve etc. (and in terms of these 3 few are inclined to feel sympathetic to the plight of the firm, but one has to remember that payments also affect service and output and not just profits and dividends, if one chooses partial privatization). Add in Brexit as a new distraction and source of investment uncertainty, and the flatline in measured productivity does not seem much of a puzzle.

A retrospective assessment of the decade that has sprinted by since the financial and economic crisis that began in 2007-8 would probably tend to the negative. That is, if one were to go back to the kind of “things must fundamentally change” perspective that held sway by 2009-10. Though it is possible to say that finance is now structured in ways that make the state less likely to be required to bail out banks, it is not clear that the UK economy is any less dependent on the financial sector than it was before, nor is it clear that changes have made financial sector problems (a global issue of financial ecosystems) any less likely in the future (though the international Financial Stability Board and the Bank of England, both led in recent years by Mark Carney, would dispute this).[iv] Rebalancing has always been an odd metaphor for an economy. What does it really mean to say an economy is balanced? Would the many who have suffered from slow or no growth in real wages and who remain debt dependent and lacking in real wealth assets in a highly unequal system agree that the economy is more balanced than in the recent past? The structural aspects of this are important to understand, since the issues that arise based on a debt-dependent society do not reduce merely to the existence and management of problem debt – if by that one simply means the (significant) proportion of the population who have difficulty servicing their debt.

As for resilience, only time and adverse consequences will tell whether the economy has this feature, but it is no more easy to define than rebalancing.[v] Resilience can, though need not, also default to policy that is about planning for the worse, and then creating entities and systems able to respond to and weather that worse. Responding to a system that fails is quite different than thinking about why a system fails. Transformation and management can be quite different perspectives.

However, a new discourse has entered into this mix in the last few years, a discourse that affects context for the productivity puzzle. A “march of the makers” has been overtaken by talk of “march of the robots”, though so far there is little sign of this in the UK. According to data from the International Federation of Robotics (IFR), the UK has one of the lowest density of robots per 10,000 employees in manufacturing in the EU and OECD. The UK registers about 71 per 10,000, even though the largest proportion of robotics currently used in industry internationally is for the automotive industry, and this is one of the UK’s largest manufacturing sectors (employing 293,000 in 2016).[vi] The global average density of robots in manufacturing, by this measure, is 74;, Europe’s 99 and Germany’s 309. In any case, the total global stock of operational industrial robots is around 2 million, albeit growing quite rapidly. It is the growth as potential (and its mirror in professional service and domestic robotics) that feeds the discourse.

March of the Robots is all about imminent futures. It fits into a growing body of literature on new capitalism, much of it emanating from global consultancies and “thought leadership” organizations, notably the World Economic Forum (WEF) led by Klaus Schwab and McKinsey. Schwab’s Fourth Industrial Revolution and related research sponsored by WEF and publications from McKinsey’s Global Institute, shaped by James Manyika, are highly influential. The literature brings together recent and anticipated technological breakthroughs in machine learning, Artificial Intelligence (AI), robotics, sensors, connectivity, cloud computing and the Internet of Things (IoT) to map out a near future that will involve major systemic transformations; what is sometimes referred to as a Kondratieff wave effect – fundamental changes that affect all aspects of society and economy and around which the system restructures and coalesces, not through simple linear change, but through a complex cumulative process of feedbacks and contingencies.

All agree that this imminent future may radically alter the world of work. However, research on just what this means has been quite divergent. Focusing on just the displacement potential created by new technology (actual and anticipated), the Bank of England published findings that 35% of all UK employment based on occupational categories was at high risk of disappearing:

Distribution of occupational employment in the UK by probability of automation:

The basis of the modelling procedure used is highly disputable, but the actual technological potentials the research draws on are significant and cannot be simply ignored by a responsible policymaker. However, the immediate effect of such research is to induce anxiety. Displacement models feed fears of dystopian futures of mass unemployment. At the same time, in so far as they herald a highly producing but radically less employing economy, they stand as one future solution to the UK’s productivity puzzle (since there will be fewer workers and worker hours to divide into output). The government has not been content to rest with this bleak picture and has also commissioned the Made Smarter Review 2017.[viii]

Using case studies, assuming best possible approaches to investment and emulation and modelling how work is not just displaced but also created through collaboration and complementary effects (some tasks are lost but new work is created for old workers in slightly altered occupations, whilst entirely new occupations are also created), the Review claims a best possible situation of, by 2025, displacement of 295,000 jobs but complementary creation of 370,000 and with another estimated 100,000 added via entirely new occupations (mainly envisaged in IT and R&D). The net change is a positive 175,000 jobs (2017: p. 53). In this future, skills, employment, productivity, economic growth and environmental sustainability and social welfare (medical services etc.) all advance together.

The Made Smarter Review is no less disputable than the more pessimistic work on displacement. Asked to state what the world will be like in 2025 and to put an actual number on that for any significant metric invites one to think how successful any previous attempt at such augury has been. More technically, many of its models are also heavily dependent on similar unrealistic assumptions to the Bank of England displacement work. However, even if augury, the real significance of the Review is as an attempt to galvanize the present for a future to be born. In this context, what is more important are the real changes that it states need to be put in place in order for its future to have a reasonable chance of being realized. The Review calls for immediate action: the creation of hubs, demonstration facilities and research centers for sectors and regions to encourage, develop and share knowledge and skills with the aim of rapidly diffusing the new technologies and their potentials (creating an internal feedback process but also winning an imagined competitive race with other countries such that the UK acquires an advantage and draws in investment to augment the feedback loop). The Review provides a utopia to contrast with the prior dystopia. It is all about seeing and seizing “opportunity” and new technology is overwhelmingly an opportunity.

However, reading the Review is an interesting exercise in rhetoric as persuasion. Opportunity has at least two channels of development. It can refer to a situation where future prospects follow from past failures (we have not achieved x, x is good, we now have the opportunity to achieve x), and it can refer to a situation where the grounds for future success have already been created (and so the opportunity is simply a matter of elaborating on past activity: we have done y and this makes x a reasonable goal). The Made Smarter Review is an attempt to shift the future to the latter (do y for x), but the empirical evidence it provides is mainly about the former (we have been remiss at y). Many of the cases and much of the best practice refer to things done elsewhere in the world (though the UK is good at primary research, and less successful at commercialization). This is quite important since it speaks to a much wider gap between reality as-is and the reality policymakers want to see realized (even if one puts aside any further scrutiny of whether the actual policy focus on hubs and information sharing etc. is the best possible way forward, and whether there are or can be adverse effects on human relations in an increasingly technologically dominated world, which seems to be paying little attention to what those effects might be).[ix]

Still, optimism is important as a way to ingrain commitment and change. The future is drawn from the past through imagination applied to possibility in the present. This is no less the case in social science, policy and business than it is in any other sphere of social life. There is a future coming and many are seeking to colonize it with the next big idea or small contribution to those big ideas. For example, here at Leeds Beckett, Dr Ollie Jones, Dr David Devins, Dr Iwi Ugiagbe-Green and others are working on a collaborative project to create business-specific productivity-enhancing practices. This is one of the varieties of initiative that the Made Smarter Review has in mind and perhaps in the near future this group will be part of better stories we have all become familiar with.

Dr Jamie Morgan is Professor of Economic Sociology at Leeds Business School.

[ii] Specifically, the ONS reported in January 2018 that productivity grew by 0.9% July to September 2017, and this was the largest increase since a 1% increase in 2011; however, over the ten years productivity growth has been its lowest based on records dating to the 1820s, and in 2017 total productivity was just 1% higher per hour than it was in 2007 (which overall amounts to about 20% less in 2017 than had it increased based on the trend up to that point).

[iii] The UK has gradually deindustrialized, though this is a conditional term, manufacturing and industry have become a smaller proportion of a larger economy and many types of manufacturing have been offshored to lower wage economies, a transition facilitated by WTO rules, membership of China in the WTO, technological changes that allow lower skilled economies to take on formerly high skilled work, but also because of improved education levels in developing countries (and crucially in the context of logistics and costs for globally networked supply chains). However, in 2017 the UK was the 8th largest manufacturer in the world by output and manufacturing was approximately 10% of the UK economy in terms of GVA and employed approximately 2.6 million (contrasted with over 9 million of a smaller working mainly male population in the mid 1960s when manufacturing was also around 25% of GDP).

[iv] For the FSB argument regarding global changes intended to increase the stability of the finance system visit: http://www.fsb.org

[v] For extended exploration of the problems of these and related policy terms see the work of Colin Hay, Craig Berry, Jonathan Joseph and others.

[ix] The Made Smarter Review’s optimism requires something new in the current context: joined up, coherent interventionism, clear-sighted evidence based policy backed by real increases in resources, and utilizing genuine logistical skills, as well as particular skills of the many and diverse participants; this is systems thinking that requires vision and leadership. However, contrast this with the current government: riven by internal disagreement, distracted, inclined to prevaricate and procrastinate, little interested in policy detail or unable to agree what that might be, singularly disinclined to risk major changes to fiscal policy to countenance expansion that actively supports growth. This sounds like a partisan statement, but it is not. It is an observation shared by both commentators on the left and right and the increasingly excluded middle in Britain’s fractious politics, and these affect the future of its economy, since this is always in the last analysis political.